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Holdout problem
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==Holdout problem in sovereign debt restructuring== If countries face the danger of default, additional complications might occur and increase the Holdout problem:<ref>Lee C. Buchheit, G. Mitu Gulati, Ignacio Tirado (2013): The Problem of Holdout Creditors in Eurozone Sovereign Debt Restructurings, p. 4-5</ref> ===National pride=== Governments fear damages of their status as an advanced economy, which could lead to increasing sovereign bond yields. As an example, during the [[Eurozone crisis]] the former French president [[Nicolas Sarkozy]] said: “we will show that Europeans pay their debt”. Sarkozy was aiming at declining bond yields with his statement, but showed implicitly that countries want to avoid sovereign debt restructurings for reasons of their own national pride. Sovereign debt restructuring could be tantamount to an admission of emerging market status. ===Contagion=== In [[currency union]]s (such as the [[Eurozone]]) the effect of complex economic relationships could possibly lead to a conflagration. A debt restructuring of numerous countries or one great country might destabilize the global banking industry. ===Relationship between sovereign debt and private sector=== In the majority of countries, a substantial part of [[Government bond|sovereign bonds]] is likely to be held by [[financial institution]]s in the sovereign's own country (like banks, insurance companies and pension funds). Restructuring those instruments will therefore undermine the health of the domestic financial system. Even if countries are able to reduce significantly their costs of debt service, the same amount might need to be spent in bank recapitalizations. ===Feasibility=== Creditors left behind in a restructuring could lead to following problems: * If there are enough of them, the financial predicates underlying the entire restructuring may be undone. * If holdouts are subsequently paid in full, it makes the participating creditors look deprived and this leads in the next restructuring to even more holdouts. * If holdouts are not paid after the restructuring closes, they pose an ongoing [[litigation]] and attachment threat to the debtor, e.g. Argentina’s decade-long legal fight with thousands of holders of the Argentine bonds that went into default in 2001.
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